CMA publishes informal guidance under Green Agreements Guidance

On 12 October 2023, the Competition and Markets Authority (CMA) published its guidance on the application of the Chapter 1 prohibition to sustainability agreements between businesses operating at the same level of the supply chain (Green Agreements Guidance) (see our October 2023 update). The CMA has now published two informal opinions under the 'Open Door Policy' introduced under the Green Agreements Guidance, with its second informal opinion published on 20 March 2024. 

• The Green Agreements Guidance and informal guidance on specific initiatives are intended to provide greater certainty for businesses on how competition rules apply to agreements aimed at achieving environmental and sustainability goals.
• The Green Agreements Guidance sets out a more permissive approach for agreements which are intended specifically to combat or mitigate climate change. In its second opinion, the CMA has applied this more permissive approach when assessing the proposal and took into account the potential climate change benefits of the proposal for all UK consumers (not just those directly affected by the proposal).
• Parties can seek informal guidance from the CMA in relation to their sustainability initiatives. The CMA will not issue fines where the agreement has been discussed with the CMA in advance: the CMA has expressly confirmed this in both opinions published to date.

Background

In recent years, the CMA has shown an increasing interest in the potential impact of competition law on companies' willingness to collaborate on sustainability initiatives. The Green Agreements Guidance is designed to provide clarity to companies on the application of the Chapter 1 prohibition to environmental sustainability agreements between competitors. The CMA has also established a Sustainability Taskforce to lead and coordinate its work, across both competition and consumer law.

Agreements covered by the guidance

The Green Agreements Guidance applies to agreements or concerted practices between actual or potential competitors which aim to prevent, reduce or mitigate adverse impacts on the environment from their economic activities or to monitor the impact of their activities on environmental sustainability. Examples of these agreements include those aimed at improving air or water quality, conserving biodiversity and natural habitats, or promoting the sustainable use of raw materials. 

The CMA has identified three categories of agreement in the context of the Chapter 1 prohibition: 

• Sustainability agreements which do not breach the Chapter 1 prohibition;
• Sustainability agreements which could infringe the Chapter 1 prohibition; and
• Sustainability agreements which are capable of exemption under section 9(1) of the Competition Act 1998 on the basis that the benefits of the agreement outweigh the harm to competition.

Climate change agreements 

The Green Agreements Guidance sets out a more permissive approach for a sub-set of sustainability agreements which contribute towards combatting climate change. Examples of these types of agreements include agreements:

• between manufacturers to phase out: (i) a particular production process which involves the emission of carbon dioxide or (ii) sourcing a particular input, the production of which causes greenhouse gas emissions;
• between delivery companies to switch to using electric vehicles;
• to pool funds, technology or expertise to support the development of more effective technology to capture and store carbon dioxide;
• between home builders only to purchase and install products that perform above a minimum energy efficiency standard;
• between retail businesses to require or incentivise suppliers to phase down their greenhouse gas emissions; and
• not to provide support such as financing or insurance to fossil fuel providers.

Approaching the CMA for informal guidance

The Green Agreements Guidance invites businesses to approach the CMA at an early stage in the development of sustainability initiatives and agreements, and provides a dedicated email address (sustainabilitytaskforce@cma.gov.uk) for seeking informal guidance from the CMA. 

Notably, the CMA will not issue fines against parties that implement an agreement which was discussed with the CMA and where the CMA did not raise any competition concerns (or where any concerns were addressed). In addition, the CMA will not pursue director disqualification in relation to such agreements. 

Where informal guidance has been sought, the CMA will typically publish summaries of the initiative, risk assessment and any solutions proposed. This will likely provide helpful guidance to companies considering similar initiatives. In exceptional circumstances, it may not be appropriate to publish a summary of the proposed initiative.

Fairtrade's Shared Impact Initiative proposal (December 2023)

On 14 December 2023, the CMA published its first informal opinion under the Green Agreements Guidance. The proposal related to Fairtrade's Shared Impact Initiative, which expands the existing Fairtrade Initiative and requires UK grocery retailers to commit to purchasing additional Fairtrade bananas, coffee and/or cocoa products. The initiative involves:

• retailers publishing their commitment to participate in the scheme;
• sourcing products from a selected group of existing Fairtrade producers who currently sell low levels of Fairtrade products;
• retailers being free to choose the products and additional volumes they will purchase under the scheme, whilst remaining free to continue to source other banana, coffee and cocoa products; and
• a three to five year commitment from the retailers.

The initiative is designed to help suppliers working with Fairtrade by providing them with longer-term purchasing commitments and Fairtrade commented that this would allow suppliers to invest in more sustainable farming and production practices. Fairtrade highlighted environmental benefits including reducing deforestation, tackling biodiversity loss and reducing emissions.  

Noting that farming remains a key driver of deforestation globally (as well as a significant contributor to greenhouse gas emissions and biodiversity loss), the CMA determined that the initiative was an environmental sustainability agreement and applied its Green Agreements Guidance. The CMA also recognised that there may be other non-environmental benefits for the producers but that these were outside the scope of its informal guidance process.  

The CMA concluded that the initiative was unlikely to give rise to competition concerns because it is unlikely to affect competition between the retailers and does not involve any coordination of retail prices or volumes. While retailers will pay the Fairtrade minimum price and premium in respect of products purchased under the scheme, each retailer is free to determine what proportion of this premium is passed on to consumers. In addition, the CMA found that the scheme would not restrict quantity, quality or choice: instead, it was likely to result in increased choice for consumers and greater availability of Fairtrade products. 

While the scheme does involve the exchange of information in relation to future purchasing commitments, the CMA concluded that this was unlikely to restrict competition as the information was limited and the initiative only covered a small part of the affected markets. Likewise, the CMA concluded that the restrictions on retailers' commercial decision-making (e.g. by committing to future purchasing volumes and duration) were ancillary to the overall initiative and were objectively necessary to fulfill the scheme's objective. 

WWF-UK proposal (March 2024)

On 20 March 2024, the CMA published its second informal opinion. This is the first opinion to apply the more permissive approach outlined in the Green Agreements Guidance for assessing agreements which are intended specifically to combat or mitigate climate change. The opinion relates to a proposal by WWF-UK for supermarkets to make a joint commitment to reduce greenhouse gases in their supply chain by encouraging their suppliers to adopt net-zero science based targets (SBTs).

Specifically, WWF-UK proposed that retailers would commit, by specific dates, to:

• require suppliers who account of at least 80% of each retailer's supply chain emissions to set net-zero SBTs; and
• introduce incentives (such as preferred payment terms) to those suppliers who achieve the common net-zero SBT milestones and disincentives (such as delisting) to those who do not.

The CMA assessed this proposal as a climate change agreement under its Green Agreements Guidance meaning it could take into account the potential benefits of the agreement for all UK consumers and not just those directly affected by the proposal. The CMA acknowledges in its opinion that, on the basis of the light touch review undertaken of the proposal, it cannot exclude the possibility of the proposal having an adverse effect on competition in the UK. In particular, the CMA noted the potential for an adverse impact on suppliers, in particular in supply markets with higher levels of concentration or in which markets in which the costs of complying with net-zero SBTs may differ across different types of suppliers. However, the CMA concluded that:

• the risk of significant harm to competition is low;
• when taking into account the potential benefits to all UK consumers, there are credible arguments that the proposal will produce relevant environmental benefits that could be capable of offsetting any harmful competitive effects resulting from the agreement. In particular, whilst noting the high degree of uncertainty inherent in the estimates, the CMA considered estimates of the level of reduction in emissions that might be achieved by the proposal (c. 7 million tonnes annually by 2030 and c. 15 million tonnes annually by 2050). Applying HM Treasury real values for carbon abatement, the CMA calculated the real value of the potential environmental benefits as in the region of £1.1 billion to £3.3 billion in 2030 and £3 billion to £9.1 billion in 2050; and
• it was reasonable to assume the same level of benefits would not be achievable in the absence of the proposal.

As the proposal has been blessed by the CMA, it would not expect to take any enforcement action in relation to the proposed scheme. 

Comment

In both opinions to date, the CMA has reiterated that should it subsequently choose to take enforcement action the companies involved in these schemes will be protected from fines. The CMA also appears to be taking a pragmatic approach to reviewing agreements under the informal guidance scheme. When reviewing the WWF-UK proposal, the CMA accepted indicative estimates and proxies of the potential benefits of the proposal and accepted that the available data was limited. 

The WWF-UK Opinion provides useful insight into the process and timing for the CMA's review of requests for informal guidance under the Open Door Policy. The request for informal guidance was submitted on 29 March 2023, with the CMA issuing at least three subsequent requests for information to WWF-UK, and WWF attending three calls with the CMA, between March and October 2023. The period between the initial request and the CMA's publication of the informal opinion therefore took just under a year.  

The 'Open Door' policy is clearly still in its early stages, and the Green Agreements Guidance was only published in final form in October 2023, meaning that the CMA's engagement with WWF-UK largely predates the final guidance. It would therefore be expected that future requests for informal guidance should be capable of being assessed more quickly than the request by WWF-UK. This will be important as the benefits of the informal guidance regime in helping businesses decide whether to proceed with proposal or initiatives will be reduced where guidance is not provided by the CMA on a timely basis.